Amy: Tonight, you know when the headlines are telling you exactly what you need to expect from your 401(k) and the economy, only they completely contradict each other, what do you believe? Perhaps, none of it. We'll help you make sense. You're listening to "Simply Money." I'm Amy Wagner, along with Steve Sprovach. All right. Labor Day is over, the official end of the...unofficial...no, it's the official end of summer is behind us, which also means, like, a new batch of crazy economic data, headlines, prognostications...

Steve: That means we're closer to October. That's when everything falls apart every year, doesn't it? That's the way it seems.

Amy: Well, so there are headlines out there today. And if you wanna try to make sense of them, well, good luck to you, my friend, because they absolutely contradict each other. And I had to laugh, it was in one publication, literally, back-to-back, one on top of the other, one saying, "Hey, looks like we're gonna have a soft landing," the other one saying, "Hey, here's all the reasons why the stock market is going to continue to tank. Good luck to investors, right?"

Steve: Oh, yeah.

Amy: How do you possibly make sense of this stuff?

Steve: Well, welcome to my world. I mean, these are the smartest people in the world looking at the exact same numbers, Amy, and come up with two completely different conclusions. Goldman Sachs, big company, very, very respected research and investment advisors and whatnot, they look at the numbers, and they say, "You know what? More people are looking for jobs. The job participation rate went up from 62.1% to 62.4%." Great. More people looking for work, that should reduce wage inflation. That means this may be a Goldilocks situation, "You know, the recession is not gonna be bad. Everything's gonna be great. Stocks are gonna take off." And then Morgan Stanley comes out and says, "Hold on. Wait a second here. Earnings, profits, they're gonna be down a little bit and the market is higher than it's been in a while. We're seeing this run-up in prices. We're due for a big pullback in prices." Two completely different outcomes from two very respected firms.

Amy: I wanna talk about Goldman Sachs, first, because this soft landing is something that we've covered many times here on the show. And this is simply when you look at what the Federal Reserve, our nation's Central Bank is trying to do right now, hike interest rates in order to bring down inflation. There are many times over the course of history where when on a similar course, the Federal Reserve has hiked us into a recession. Not a pretty picture.

Steve: No.

Amy: And so there were these...

Steve: They're really good at it.

Amy: Yes, very specific circumstances where, "Hey, if we can meet these..." And Goldman Sachs was essentially saying there's three criteria, right? One is, like, growth slows down at a good case, meaning demand, all of us spending money, and the job market has to be in exactly a certain place, and then inflation starts to come down at a good pace, and if all of those things are exactly perfect at the same time, looks like soft landing. And hey, when we look at the data, it looks like, "Hey, maybe we're heading in that direction." So you've got that kind of analysis from Goldman Sachs, and then to your point, completely different analysis from Morgan Stanley.

Steve: Yeah. And you know what? I think everybody wants to believe that this is a Goldilock situation, not too hot, not too cold.

Amy: Just perfect, right? Just right for our economy.

Steve: Everybody would love everything to work out perfect and it so rarely works out that way. And, you know, part of the problem is...and the Federal Reserve is extremely aware of this. Whatever the Federal Reserve does, we're not gonna see an economic impact from their moves for six to nine months. I mean, it's like calling a play at the line of scrimmage in football and not knowing if it's a gain or a loss and you gotta call another play before you find out whether or not it's a gain or a loss. I mean, how do you do that?

Amy: Such a great metaphor. Yes.

Steve: How do you do that? You know, I'm gonna bore everybody and talk about price/earnings multiples for a second because...

Amy: That's not boring at all.

Steve: Well, maybe to you. For a lot of people, it could.

Amy: I was kidding.

Steve: No, but in all seriousness, why is a stock, Amy, worth what a stock is worth? I mean, if you own a share of stock, you own a piece of that company. I don't care if it's Proctor & Gamble or X, Y, Z trading at two bucks a share, you are a part owner. And if that company gets bigger and more profitable, your little tiny part ownership is gonna be worth more over time.

Amy: It grows. Yeah.

Steve: Exactly. In the meantime, it goes all over the place because of, you know, people saying, "It's great for the economy. It's bad." But over the long term, it's gonna grow. Well, we're in a situation now where higher interest rates are starting to hurt profits. It costs more for a company to borrow money than it did a year ago. So if they are seeing their profits go down even a tiny bit, why should the stock continue going up? Yet, that's what Morgan Stanley is looking at right now. They're expecting earnings over the next 12 months to drop, on average, about 1.5%, yet the price to earnings multiple, the value of that stock has gone up 9%. So if profits are down, but the price of the stock is up, Morgan Stanley is saying, "Hey, that's gotta fix itself. Either earnings have gotta get better than they look right now, or the price of the stock has to come down." And I'll tell you what, I always side on the side of earnings because that determines where stocks are. It doesn't mean I know the stock market's going down by any stretch, but it's definitely a headwind in the face of stock prices.

Amy: You're listening to "Simply Money" tonight here on 55KRC as we make sense of the headlines if you can possibly make sense of the headlines, especially when they contradict each other as we're seeing right now. How do you make sense of it? Here's another headline, which has me pretty excited, "Gas below $3." Yes, that's according to GasBuddy, expecting some states could see prices below even $3 at some point this year. Sign me up for that.

Steve: Oh, yeah. I'm all over that. It would be about time. I do remember it was $2, it seems a couple of years ago, but you know what? I'll take $3 on the word of $2. How does that sound?

Amy: $3 sounds pretty good when you look at the fact that we were at $5 not that long ago.

Steve: Yeah. Yeah. No kidding. But, you know, again, why can that change? Well, there's a lot going on in the world, not just the hurricanes in the Gulf Coast, and we're getting into hurricane season, but take a look at Europe. I mean, what's going on there? We've got some major issues going on with the Soviet Union...and I'm sorry, Russia, it's not the Soviet Union anymore.

Amy: When you're dating yourself.

Steve: Yeah. Russia is saying, "Oh, Europe, hey, you decided you wanted to sell weapons to the Ukraine, okay, we have a little maintenance we're gonna do on the pipeline that we supply most of you with natural gas about. Oh, and we're not sure how long this maintenance is gonna take." The weird part is, Siemens, which is a German company, is in charge of doing the maintenance on that pipeline. Siemens said, "Russia hasn't called us. We don't know what they're talking about."

Amy: Oh, shocking.

Steve: Yeah.

Amy: Shocking.

Steve: Mad, mad. Maybe Putin's lying.

Amy: I gotta tell you what is shocking.

Steve: What's that?

Amy: As we talk about gas prices coming down here, I was reading something this morning about natural gas prices in Europe because of the pipeline that you're talking about, what they could be experiencing. And we talk about kind of this global economy, but this is kind of a regional issue that's really affecting Europe really hard. But they were sort of saying, if German families are hit with utility bills that accelerate at the same amount that natural gas prices appear that they're going to be, some families in Germany on average could be spending $3,900 a month...

Steve: A month. Oh my God.

Amy: ... on utility bills. Like, that is insane. Then you talk about, "Okay, that's a regional problem, how those people have to spend their money," right? When those people in Germany go to the store, they have no money left to buy Tide brand detergent, so they're buying the generic. This is where the ripple effects hit our economy, you know, and you can look at other ways to get natural gas to them. But apparently, it's a process that's incredibly expensive where you have to get the natural gas heated to exactly the right temperature in order to liquefy it, in order to get it to a tanker to get it there, takes a long time, incredibly expensive. Man, the pressure on Europe and those families over there this winter, as we celebrate the fact that our gas prices could be going down, you kind of feel bad.

Steve: Well, you know what? I think the number is 40% of European natural gas comes from Russia. So, you know, obviously, they knew this was gonna happen once the war started happening between Ukraine and Russia, so they've been looking for alternatives, but you can't do it overnight. So they're scrambling.

Amy: Yeah. You can't just pull the switch, right?

Steve: No.

Amy: Yes.

Steve: They're scrambling. And luckily, in this country, we've increased production somewhat, but I think we can increase production more if the current administration would allow a little bit more incentive to drilling both natural gas and oil. We could see prices come down but, you know, that's a political issue, which we don't wanna get into.

Amy: All right. We're not getting into politics. We are gonna get into is Bill Murray. I'm a fan of his for several reasons. Number one, I mean, hello "Ghostbusters," "Groundhog Day," right? Such great movies. Also, I'm a college sports fan, and it was so cool for years to see him in the stands at Xavier games and UofL games where his son...

Steve: I know.

Amy: ...was one of the assistant coaches. And then, of course, the man is a humanitarian. He does a lot for charity. Specifically, over the weekend, held a charity event to raise money, and he was selling one of those NFTs, right? Those non-fungible tokens. The money that was raised was put into his crypto wallet, and that's where things get ugly.

Steve: Yeah. He was gonna have that money donated, which is good, and, you know, he's raising money...

Amy: Very cool.

Steve: ...for charities. And, well, it got stolen. You know, somebody hacked...

Amy: Hacker.

Steve: ...into the crypto exchange that he was using. Luckily, crypto exchanges are covered by insurance against theft or fraud, so everybody's gonna be made whole, right? Isn't that the way it works?

Amy: Yeah. Yeah, because there's all kinds of regulation, no.

Steve: No.

Amy: No regulation.

Steve: There's no insurance on these exchanges. And that's the crazy part. If somebody hacks into, basically, your digital wallet where you keep your crypto...you gotta keep it somewhere. It's gonna be on a computer somewhere. And if somebody figures out how to get ahold of it, guess what? It's gone. There's no recourse. And that's what's keeping me, personally, out of crypto, and I don't know how anybody can put substantial dollars into cryptocurrency where hackers can grab it and you're just SOL, that money's gone.

Amy: Well, here's what they did, his team, to recoup that loss because to your point, there's no insurance covering this, there's no regulations saying...they started a GoFundMe and asked for people for more money. They did raise $25,000. And then, luckily, as we mentioned, this was kind of a bidding war, the second place bidder came up with a hundred plus thousand dollars. So this organization that Bill Murray was raising money for will be made whole. But the really cool thing, or, I guess, the major takeaway, though, is how these things can go wrong. Here at "Simply Money," we preach this time and time again, "Headlines are noise. The price of gas is uncertain. And, yes, investing in crypto is dangerous." If you're in the market for a home, has that market cooled down? What's the current state of things? We're gonna explore that next with our real estate expert. You're listening to "Simply Money" here on 55KRC THE Talk Station.

You're listening to "Simply Money." I'm Amy Wagner, along with Steve Sprovach. If can't listen to our show every night, well, subscribe to our weekly podcast. It's "The Best of Simply Money". You'll find it on the iHeart app or wherever you get your podcast. Straight ahead at 6:43, how to retire on time. Yes, even if you got a late start, we've got some tips to get you started, the housing market. I don't even know how to put it into words what has happened over the past two and a half years since this pandemic started till now, which is why we have our expert to put into words what exactly we are seeing right now. Of course, we're talking about Michelle Sloan. She owns RE/MAX Time. She's got the show right here on KRC every Sunday afternoon. Michelle, what is the current state, I feel like it changes quite quickly right now, of the real estate market? What are we seeing here in the tri-state?

Michelle: Absolutely. Well, the biggest thing that we are seeing right now is the mortgage rates and how the impact of higher mortgage rates are affecting people who want to buy a home and people who want to sell a home. The higher mortgage interest rates actually are affecting sellers right now, just as much as it's affecting buyers. So think about that.

Steve: Michelle, I don't know real estate, I know the stock market, and people, whenever they see a big correction, a big drop in stock market prices, they wonder, "Are we going back to 2008?" Which was the collapse in stock prices. I mean, I've gotta address the 800-pound gorilla in the room, which is, you know, with mortgage rates going up, is there a chance of a 2007-style real estate collapse?

Michelle: No, I don't think so. The market is so different than it was then. I think that there are a lot of regulations in place to make sure that it doesn't ever happen again. Plus, the market itself is so different because at that time we had a lot of inventory, we had a lot of people trying to sell, we had buyers getting into the market who could not afford to purchase a home, and that was just a recipe for disaster. So now, the correction...and I will say we are undergoing a correction right now in the real estate market in Cincinnati and all over the country. And what this means is we are seeing more and more, the prices of homes have gone up so dramatically over the course of the last two years. They've gone up in some cases, 20%, 30%, 40%, 50% year-over-year.

Steve: Oh, I've got a son in Phoenix. The Phoenix market was nuts. It was even higher I think out there, wasn't it?

Michelle: Absolutely. Up to 70% increase in prices. Now, that is 100% not sustainable. And it doesn't take a mathematician to figure that out.

Amy: Bonkers. Yes.

Michelle: Yeah.

Steve: Even Amy can figure that out [crosstalk 00:14:23].

Amy: Oh, now, come on.

Michelle: Oh, boy.

Amy: All right. I wanna level set here, Michelle, because, you know, just a few months ago, we were at a place in the real estate market where there were bidding wars, you just mentioned, you know, houses going for insane amounts of money. As we talk about the fact that interest rates are slowing things down, what is reality here in Cincinnati right now? If you were to put a home on the market, is it a bidding war and it's sold in hours? Is it it's still in the market six months later? What can we expect?

Michelle: Hopefully, it won't be on the market six months later. Nobody wants to go back to that.

Amy: Yes.

Michelle: That would be devastating. So the state of the market right now, we have to understand that mortgage rates have nearly doubled since January. So, last week, they were hovering around 5.7% on a 30-year loan. Back, you know, two years ago, or even six months ago, really, it was closer to 3%. So we've nearly doubled the mortgage rate. But we are seeing more and more homes going on the market. At the same time, buyers are backing out of the market because they cannot afford the same amount for a monthly payment that they could six months ago. So, to your point...

Amy: So you kind of have equilibrium in the market, right, because there was, like...

Michelle: We're starting to get, yes, some stability, but homes are not selling as quickly. So some of the latest statistics, we've had more than 700 new listings on the market in Cincinnati. We've had over 300 price reductions. Price reductions mean that the house hasn't sold at the price that the seller started at. Now, we're starting to negotiate, which we didn't have to do, you know, six months ago. Six months and a year ago, the list price was just the starting price. Today, the list price is the start of the negotiation. I'm not saying that in some parts of Cincinnati we are still getting multiple offers because we are, but the majority of the area in Cincinnati is not seeing that rush, that absolute explosion of buyers coming in and offering ridiculous amounts of money, waving everything, including appraisals and inspections. We are not seeing that, which to me is a good thing because we were out of control. And you know this with the stock market, once it gets out of control, something has to stop it.

Steve: Yeah. Yeah. Well, high mortgage rates will do that. So if you're a seller, did you miss the boat, or can you still get a decent price for your house? Will it still move?

Michelle: I think you will get a decent price, but you're going to have to be patient. So if you don't get an offer in the first 24 to 48 hours, you don't want to panic because if it was priced right, to begin with, the nice thing is we have a lot of really high-priced comps right now, so our comparable home sales are higher than they've ever been. And so we can use that data. But as far as a seller missing out, missing the boat, missing the bubble, yeah, it's changing, and most likely, there will have to be a price reduction in the future if it doesn't sell in the first couple of weeks. But again, people right now, who has patience for anything in our world right now?

Amy: That's true. And I'm wondering, Michelle, too, from a buyer's perspective, and, specifically, like, even first-time home buyers, you probably got beat out several times in a crazy bidding war and, you know, prices were going for insane amounts over the asking price. But now, you're gonna pay more in mortgage rates. So do you find people kind of sticking it out saying, "I don't know, I might end up paying the same amount that I would have if I had won one of these bidding wars," or are they saying, "No, I'm just not comfortable with these mortgage rates?"

Michelle: It's a little bit of both. I think now is a great time. If you were a buyer and you missed out on getting a home, if you were the bridesmaid over and over and over again, now is your time to shine. And if you find the right home and you can afford it, it's obviously very important, can you afford those monthly payments even at the higher mortgage interest rate? I would recommend buy it because you can always...it's difficult to find the right home. The financing, you can restructure. The rates are likely to go back down at some point. Maybe it's next year, maybe it's the year after that. But likely, those rates are going to fluctuate on a day-to-day basis, just like the stock market. So if you find a home you can afford it, jump right in and actually start building your wealth. And by owning a home, you are building your personal portfolio. It's so very important.

Amy: Great insights as always from a real estate expert, Michelle Sloan. Coming up, why do so many smart people make so many stupid financial decisions? We're gonna explore that topic next with an expert on the subject and get you some good, sound advice as well. That's next. You're listening to "Simply Money" here on 55KRC THE Talk Station.

You're listening to "Simply Money." I'm Amy Wagner, along with Steve Sprovach. I think most of us know the right thing to do with money, so why don't we always do that? Why don't we always choose that? It can be a very complicated question. Joining us tonight to help make sense of this, Hal Hershfield. He's a professor of behavioral decision-making at UCLA's Anderson School of Management. Hal, we do, I think most of us, especially those who listen to these kinds of shows, kind of know what we're supposed to do, yet we don't always do it. Let's talk about why that is.

Hal: Yeah. Amy, thank you so much for having me. It's a great question, and I think most of us, you're right, have that same feeling, which is, "I know I should be doing this, but I always find myself having a hard time doing it." And, I mean, there's lots of reasons why. We can start with the fact that we live in the present and the present is so much stronger than the future. And so even if we know we should put aside some money, even if we know we should be saving or doing something for the long run, well, needs crop up and wants crop up, too, right now, making it hard to do the things that we say we want to do. So that's one big reason.

Amy: Okay. You know, we always talk about having a financial plan, right? You make a financial plan for yourself, it helps you plan for retirement, or if you wanna help the kids, pay for college someday, or a wedding, whatever that is. And I think when you sit down with that advisor or you figure it out yourself, it's like, "Okay, this is good to go, right? I believe in this. I can get behind it." And then things get weird. The markets go berserk, the economy is a little crazy, whatever it is, and all of a sudden sticking to that plan isn't as easy as we once thought. Why is that?

Hal: Yeah, that's exactly right. So, I mean, there's a couple of things going on here. So, first off, I would say that plans are great, and the best plans are the ones that have an automatic component to them and have more of a lock-in that makes it difficult for us to be our own worst enemies. If that doesn't make sense, what I mean by that is, we wanna make it harder for ourselves to switch gears because of some sort of sudden worry or feeling or concern on our parts. You know, you did mention...

Amy: Just like our parents or our grandparents maybe used to have a pension, right? That money was there, they couldn't touch it.

Hal: That's exactly right, you know. And, of course, that's the basic idea behind a 401(k), which is really only a sort of personally managed pension. But the problem there is the personally managed component, right? Which is to say it's easy for us to start then sort of messing around and can, you know, convince ourselves that we need that money right now. Now, of course, there can be times when we do need it, and, you know, that's the reason why it's good to have a rainy day fund. I saw somebody the other day say something that made so much sense to me, which is, you're not a failure if you dip into your rainy day fund, it means that you were prepared...

Amy: Yeah, that's a great point.

Hal: ...for unexpected expenses.

Amy: Yeah, exactly. And we talk all the time about that rainy day fund or that emergency fund and why you have it there so that you're not dipping into those retirement savings. But, you know, so many of us, you know, get those statements and we see that money either going up or going down. And then there's, in the present...and I think that's a great point, there's things we need right now. And so it's hard to think about the future self and retirement. And especially, Hal, I think right now when you've got markets all over the place, when you look at that money that's taken however many number of years to get into that account starting to go down, for a lot of people, the knee-jerk reaction is, "I'm just gonna take it out," even though I think most people know, somewhere in their heads, not the best idea.

Hal: Yeah. You know, I think this is a particularly difficult problem to solve because, you know, we are convincing ourselves that we're doing this, we're pulling the money out because we see the dips. We convince ourselves that this is the right move. And I would sort of, you know, push back and say, "It's the right move for who?" Because, you know, historically...and, of course, you know, we don't know what's happening today, but, historically, the data would suggest that if you have a long-term goal, it's best to just let it be, let it ride, right? And if we pull it out right now, we may actually be ironically harming ourselves in the long-term, you know, for our future selves there, right? So I would say it all depends on what the time horizons of our goals are. If we have a long-term goal, if it's retirement, and that's not for 10, 20, 30 years, or whatever it may be, then we've built in market volatility, we've built in risk to get higher returns there. If, of course, our goals are much shorter term, well, then, you know, that's a conversation that we should be having with our advisors about having our investments in...well, in safer harbors, I would say.

Amy: Absolutely. You're listening to "Simply Money" tonight here on 55KRC as we're joined by Hal Hershfield. He's a professor of behavioral decision-making at UCLA's Anderson School of Management. Essentially, why do we sometimes do things with our money when we know it's not the best thing? Hal, I'm wondering, if in your research, what you've learned about how we grew up with money, how our parents dealt with money? What is kind of just innate that we're not even processing is probably on some kind of subconscious level of just how we've grown up with money that affects our decision-making today.

Hal: Yeah. This is a great point, right? So a lot of my own research looks at the relationships that we have with our future selves and how those relationships impact our financial decisions, you know. And the gist, of course, is that if we feel closer and a stronger bond with our future selves, then we're more likely to do things today that might put ourselves in a better position tomorrow. But your question is really about how, you know, historically, what our childhood experiences are, what our life experiences are, may impact those relationships and those future decisions. And this is a really tricky topic because, of course, you've got some genetic influence, and you've got some environmental influence. And this is not my own research, but other researchers have found that our life histories do matter. In other words, how we grew up with money does matter. But one really important caveat there is that it's not like these sort of life histories or our childhood events are sort of ever-present, but rather they seem to rear their head when the volatility arises.

So, in other words, if we grew up in a financially restricted environment, whether objectively speaking it was financially restricted, or that was our attitude toward money, then we start seeing that sort of mindset creep in when we experience more volatility in the market. On the other hand, if, you know, we grew up with a more laissez-faire attitude with more of a sense that money was flush and, you know, that we could have a cushion in the future, well, then you see people being a little bit more relaxed even when times get tougher. So it's not just sort of a all or nothing thing, but rather you see these childhood influences sort of pop up when markets go volatile or, you know, when our own personal circumstances are more volatile.

Amy: Yeah, that makes a lot of sense. I also wanna get to social media. You know, for those who scroll through Facebook, Instagram, Twitter, you name it, I think we like to think like, "Oh, we know about social media. Like, we're not making any monetary decisions, anything about how we spend our money based on social media." But I think if we really thought about it, we would realize that's not true.

Hal: Yeah, you're exactly right. So, you know, it's a really interesting topic. There's been a lot of theorizing about how sort of mass events can cause, you know, sort of quirky investor behavior, right? I mean, this is something that economists have talked about. Well, it seems like for decades, if not centuries, the idea that there can be bubbles and bubbles are driven by sort of mania that's driven by me seeing what other people are doing. We don't actually know from, like, an empirical standpoint. We actually haven't seen research yet looking at individual-level influence from, say, Twitter, or Facebook, or Reddit, or social media, generally speaking, and how those platforms then impact our own investment behavior. It's, actually a question that I've been looking into with two colleagues right now to see whether or not some of these sites may actually intensify our sense of...well, you know, to borrow this sort of popular term, whether, you know, these sites intensify the feeling of FOMO, you know, the fear of missing out. If I see everybody talking about this great investment...

Amy: Well, think about the meme stocks, right?

Hal: Exactly. Exactly.

Amy: Meme stocks that started last year on Reddit and the frenzy that was involved around that. And I think that's a very kind of blatant example, but I also think you kind of casually look at social media and you see your college friend is driving a certain car or going on a certain vacation and maybe you can't really afford that, but you think, "I should." And so then you make different decisions about credit card debt or pulling money out of your 401(k), right? I think that we don't, even on a conscious level, think about these things, but there has to be some kind of an impact.

Hal: Yeah. I suspect you're right about that. And so, you know, part of the issue here, just like you said, is that we may not be fully aware of the impact, sort of the constant consumption of these images and, you know, comparison of experiences, etc., is having on our own decisions about money and how to spend it. Again, you know, this is speculation at this point because, you know, we haven't looked at sort of a specific influence of what I consume on say, Facebook, or Instagram, and how that impacts my decisions. But it used to be the case that one of the advantages of spending our money on experiences was that experiences were harder to compare. And so my vacation could have been half as much as yours, but we could have had just the same amount of sort of positive utility from that vacation. And now, with social media, experiences are incredibly comparable, or, you know, it's much easier to compare one to another.

Amy: Yes, exactly.

Hal: [crosstalk 00:30:30] sort of take away some of the advantage there.

Amy: Yes. So, just great insights from Hal Hershfield. He's a professor of behavioral decision-making at UCLA's Anderson School of Management. If you ever wondered, "I know the right thing to do with my money, but why am I not doing it?" So much of that has to do with behavioral finance. You're listening to "Simply Money" here on 55KRC THE Talk Station.

You're listening to "Simply Money". I'm Amy Wagner, along with Steve Sprovach. Straight ahead, why some companies are keeping prices right where they are despite, of course, yes, inflation and other companies raising prices. We'll explain what that is. All right. You know, I think there's a lot of people out there, Steve, who say, "I know I need to save for retirement, but this thing." "When I get that raise," or, "Well, we've got this big family vacation." Whatever it is, you didn't start saving when you knew you should. So is it too late? Can you still retire? We would say, "Yes, but you gotta get serious about it."

Steve: You do. And I know somebody very well that got a very late start and had to do some scrambling, me. I mean, I met Ed and Nathan in my early 30s, and we started a company, and, you know, you're scrambling...

Amy: From the ground up.

Steve: From the ground up.

Amy: Yeah, I mean, there were some months when, yeah, paychecks were questionable. Sure.

Steve: Absolutely. And when things did start to move along, "Oh, our oldest son is ready for college, how much does that cost?" "What? How much? Wait, wait, how much?" But you have to find a way. I mean, there's...you know, pensions are pretty much a thing of the past, Amy, you know. So if you can't depend on yourself, don't look around you because there might not be anything else out there. Social Security, yeah, maybe, okay. It should be there. But you've gotta...

Amy: To some degree, right?

Steve: Yeah. But you've gotta sock some money away. And, you know, the avenues are out there, you just have to make a budget up. And I hate using that word, but you've gotta make this your priority, and maybe you have to max out your 401(k). Luckily, the numbers are fairly high that you could put into your 401(k).

Amy: I mean, I would say depending on how late you are, it's not a maybe you have to max out, it's you have to max out your 401(k), right?

Steve: Yeah.

Amy: You have to get the maximum amount if there's a company match and then you certainly...for this year, actually, if you're under, what the age of, like, 55, you can put an up to what? $20,500?

Steve: Yeah, exactly.

Amy: And then up from there, if there's a catch-up contribution, you can add an extra what? $5,000? $6,500, yes.

Steve: Once you hit age 50, you can put up to $27 grand of your own money in your 401(k). And that's your money. Over and above that...

Amy: Not the company match. Yes.

Steve: Yeah, you get the company match. So, I mean, the way the numbers work out, let's just talk about a million dollars, Amy. I mean, on a million dollars, you can draw about $40 grand a year on top of your Social Security out of your million dollars. That's the 4% guideline. So, okay, what's it take to save a million dollars? Well, if you've waited until you're 39 and you want to get out somewhere around 60, 62, 65, you've got roughly 20 years, if you can get a 7% or 8% return on that money and you max out your 401k, guess what? You can hit a million dollars over 20 years. You've gotta get 7%, 8%, which means you're gonna be heavy in stocks. You're not gonna get that out of a bond portfolio over the long haul. But you can max out. You can put your $20 grand, $20,500 away, and when you hit 50, bump that up to $27,000 a year. And that alone, if you get roughly 8%, will give you your million dollars and you're on your way. It's a lot of money to put away, but you know what? You gotta do it at some point.

Amy: And I think some of you need to not only look at your 401(k) but also an IRA, right?

Steve: Yeah.

Amy: Funding an IRA on top of that. Much less money that you can put into these I think was what? $6,000 a year max that you can put into an IRA if you've got that...50 and older, that extra $1,000...

Steve: Extra grand. Yeah.

Amy: ... that you can put in. But, again, it's money that can grow and compound on top of what you're doing. And I think if you're in a place of like, "I'm behind and I'm starting to get worried. I'm losing sleep over this," I think you have to look at every avenue available to you and say, "Even if I have to change how many times a week we eat out, or we go from a European vacation to Florida, or a Florida vacation to a Gatlinburg," whatever that looks like, you might have to make some changes. But the key here is it can be done.

Steve: It can be. And it may take some sacrifice. You know, the easiest way of doing this, though, Amy, is start younger. And, you know, if you are young and you can put 10% or 15% into your 401(k), you're gonna be so far ahead of the average person. But, you know, for those people that, you know, just found everything in their way and every reason in the world that you can't get started until later in life, yeah, it's just more and more sacrifice the longer you wait.

Amy: I wanna touch on something else really quickly because I think there's a lot of people who would say, "Well, you need to reset your expectations if you've started late." I would say if you have started late, you probably don't have expectations because I think those who sit down and have a conversation as a couple...if you're a couple, or think through, "What do I want retirement to look like?" Once you start thinking about it and you're serious about it and it becomes this thought in your mind, you naturally start saving because how else are you gonna get there? But it's the people that don't think about it, right? "What does that look like? Do we wanna travel? Do we wanna help support the grandkids? Do we wanna live by the beach?" Those kinds of things.

Steve: Amy, I did a plan for someone, he's become a pretty good friend over the years, and, you know, it was kind of dicey. He wanted to retire early and he and his wife were, you know, had certain expectations of how they wanted to live. And I said, "Well, you know, if you're gonna live to be in your early-mid 90s or so, it's gonna get really dicey towards the end if you pull the string when you're talking about retiring." And his answer was just perfect. He said, "You know what? We'll adjust. We'll figure it out. We can get by on a lot less if we need to. I'm not worried about that." That's the right attitude. Someone who says, "No, we're gonna keep spending more and more and more and plug inflation in," you know, it might not work out as good as you hope. As long as you're willing to adjust, you should be fine.

Amy: Here's the "Simply Money" point, if you started late to the investing game, it's not too late to jump in. In fact, you can still hit retirement goals, but you've gotta get disciplined about it now. Coming up, some companies fighting inflation by not fighting it. We'll explain next. You're listening to "Simply Money" here on 55KRC THE Talk Station.

You're listening to "Simply Money." I'm Amy Wagner, along with Steve Sprovach. You know, we're all living in a world right now where inflation is at 40-plus year highs. I mean, the Dollar Store doesn't even charge a dollar anymore. It's $1.25.

Steve: You have to ask the price at the Dollar Store. That's sad.

Amy: Yes. But it's interesting because many companies, of course, they're having to pay more for shipping, for parts, for everything they need to make their products. And so what do they do? Of course, well, they pass that on to you, the consumer. However, there are some exceptions to this rule, some companies, manufacturers who are looking at it and saying, "No, we're gonna take this one on the chin."

Steve: Some companies have figured out you've gotta lose money to make money. They're called loss leaders. And I think the best one out there is Costco. Costco knows that they will make money through memberships and, you know, selling pallet fulls of toilet paper to people. They're gonna make their money when you're in the store. But to get in the store, a lot of people go there for their hotdogs. And their CEO is on record of saying...when, you know, their people were saying, "We gotta raise prices across the board, including hot dogs," he said, "If you raise the price of a hot dog, I will kill you." This is the guy in charge, the CEO of Costco, telling his top executives, "I will kill you. Keep the prices low. Figure it out." And they have. They're still a buck and a half for a Costco hot dog and some pop.

Amy: Since 1985, been that same price. And that's what they said, "If you're still coming in the door to buy the hot dog, you're gonna buy all the other things. And we know once we get you in, we can sell, right?" And so it's almost like a measure of goodwill, right?

Steve: Yeah.

Amy: You know, "We know you're paying more for everything, we're gonna give you a break here." AriZona iced tea, I think these used to be everywhere, they're continuing to offer their plus size cans at their value price of 99 cents. Hasn't gone up. I think they think, "Well, people will keep coming back."

Steve: Is that a deal? I must be old because I remember paying, like, 8 cents for a can of pop.

Amy: Oh, well I can tell you...

Steve: I am old.

Amy: ...because my kids all wanna buy, like, Sprite every time we go that that is probably pretty cheap. BARK is a store that you can order things for your dog from. They're saying, "Hey, if you lock in prices now, become a customer for life, we'll keep you on that same price." There are options, understand, though, all of these wanna get you kind of into their spending system to keep you around. You've been listening to "Simply Money" here on 55KRC THE Talk Station.